Becoming a landlord may seem simple – you buy a property and then rent it out – however, you need to consider many smaller things before you take the plunge and become a landlord.
Whether you’re renting a property you already own or buying a property specifically to rent out; you’ll be subject to new types of tax and fee penalties if you don’t hand in the required documents when HMRC requests.
This article will cover everything you need to know before becoming a landlord, so you can enter this new career feeling confident about your choice.
What Is A Landlord?
As defined by the UK Government, the official definition of a landlord is ‘anyone who rents out a property they own under a lease or a licence shorter than seven years.
What Do I Need To Become A Landlord?
Once you have a property to rent, one of the first things you need is a trusted landlord accountant. The legal aspects of becoming a landlord can be daunting, so it’s important to have a professional on your side to handle the intricate tax and billing work, especially if it’s your first time.
A landlord’s accountant will help you to organise receipts, contracts and any financial information that comes your way. Having a perfectly organised trail of documents will make it easy for you to provide information to HMRC if you need it for an audit, and it also helps to have a professional to ensure you’re paying all of the taxes you owe.
How Long Does A Lease Last?
Typically you’ll find that a lease will last anywhere from six months to a year and will be reviewed and renewed at the end of this period. Sometimes, if property costs are increasing, the landlord may increase the cost of rent, so the tenant must get to decide if they renew their lease under these circumstances. The UK Government specifies four types of landlords:
- Short-term landlord (less than twenty-eight days) – Landlords who provide extremely short-term leases. This type of property will most likely be used for people staying for business or long holidays.
- Long-term landlord (more than twenty-eight days but less than seven years) – The most common type of landlord, for any lease longer than one month but less than seven years.
- Long-term landlord (over seven years) – Extended long-term leases like this are much less common with standard property renters. Most of the time, it will be for an ‘implied tenancy arrangement’; for example, accommodation is provided as part of a job with a long-term contract.
- Letting/managing agent (agent) – Though a letting agent sometimes only works in the management of properties, under a circumstance in which the management contract specifies that they are responsible for maintenance, gas checks and record keeping, they will hold the responsibilities of a landlord.
What Is A Landlord Contribution?
A landlord contribution is a contribution that the landlord makes, usually as an incentive to get a tenant to take or keep the property they’re renting. Typically, a landlord will offer one of three incentives to convince a tenant to take the property:
- A rent-free period.
- A cash donation.
- Contributions towards the tenant’s works.
Cash contributions are known as ‘reverse premiums’; however, a rent-free period doesn’t fall under this category as no physical money changes hands. Reverse premiums only include exchanges that involve money.